Before You Apply for a Mortgage
Thinking about buying? Here’s some things you should do before you apply for a mortgage
Before you apply for a mortgage, you should make sure you’re in a good position to qualify for the best loan possible. It’s a good idea to check and improve your credit, compare lenders, get preapproved and make a plan for your down payment.
1. Check and improve your credit report.
Lenders will check your credit report, so you want to identify and fix problems with your credit report before you apply for a mortgage.
Order a free copy of your credit report at AnnualCreditReport.com. Your report will list your borrowing history, including any negative marks. You can pay extra to access your credit score with your report. Alternatively, some websites (like Credit Karma), banks and credit card issuers give customers free credit score access.
Check your report for errors and contact the credit bureau if you find any. You can take steps to improve your credit score, such as always making your monthly payments on time, paying down your balances and not applying for other loans and credit cards.
Although improving your credit before you apply for a mortgage can help you with approval and better terms, don’t rule yourself out of applying just because you have a less-than-perfect credit score, says Rob Sickler, loan originator with Mortgage Network Solutions. You can make up ground by finding the right lender and putting together a solid mortgage application.
2. Get preapproved.
You should get preapproved for a mortgage before you start looking at properties. It speeds up the closing process because it helps you narrow down your search. The lender will tell you the maximum amount you’re preapproved for, so you can avoid looking at houses that are out of your loan range. A preapproval can make you more attractive as a buyer. You can show sellers your preapproval letter to prove you can afford their property.
3. Compare multiple lenders.
Don’t sign up with the first lender you speak with unless you’ve researched others. Getting multiple quotes increases the chance you’ll find the best rate for your situation. You can get preapproved with multiple lenders without getting locked into a commitment.
4. Submit mortgage applications within a short window.
When you apply for a mortgage loan, the lender will pull your credit report and score to evaluate your application. The resulting hard inquiry remains on your credit reports for up to two years and may negatively impact your credit score. However, you can minimize the impact on your score by applying for multiple loans within a short window.
Depending on the scoring model, multiple hard inquiries for the same type of loan that occur within a 14- to 45-day window are treated as a single inquiry. Additionally, inquiries from the last 30 days don’t get factored into your credit score.
While a prequalification typically only results in a soft pull of your credit, your credit may be hard pulled when you apply for a preapproval, apply for the mortgage and right before the closing. To limit the potential negative impact on your score and increase your chances of securing better terms, you may want to try to shop for a loan in a short period of time.
5. Don’t apply for other loans and credit cards.
In the months leading up to your mortgage application, do not apply for any new loans or credit cards. Each application can shave a few points off your score, which could prevent you from qualifying for the best mortgage rates. Hold off until after you’ve bought your home.
6. Don’t spend all your savings on the down payment.
Maximizing your down payment gets you closer to owning your home outright. However, you might need to fall back on your savings for repairs or underestimated costs, or if you lose your job.
Often, things go wrong with a house within the first six months of ownership, says Blackhurst. “The house might have been vacant for a few months, which means water hasn’t been going through the pipes. If the seasons have changed, the different temperatures could create trouble for the heating and AC units.”
He points out that you’ll need money for expenses like new furniture, painting the living room and landscaping, in addition to repairs.
You should also budget for property taxes, homeowners insurance, private mortgage insurance, association dues and utilities.
7. Beware of scams.
As you go through the mortgage process, be on the lookout for scams. For example, the Federal Trade Commission warns of a scam where thieves email you pretending to be someone involved in your deal, like the real estate agent or a representative from the title company.
They may even break into a company email account so the email looks legitimate. They could ask you to send over private financial information, open an attachment with a virus or wire them money.
To avoid becoming a victim, you should:
- Never send confidential information by email.
- Contact the lender or title company directly before sending any money.
- Don’t open email attachments unless you know what they’re for.
- If you sent money as part of a scam, contact your bank or money transfer company immediately to try to cancel the payment.
Need some more guidance? Contact one of our experienced Realtors!
Source: “The Best Mortgage Lenders of 2018,” U.S. News